Originally published on End to End Stuff, Sept 13th 2010 and recently rediscovered.

For several years, I’ve been evangelising the Bundesliga as actually being the “best league in the world” – despite what the Premier League media machine keep telling us.  It’s a toss-up whether it’s quite as competitive as the English League Championship, but it’s certainly one of the most fan-friendly with the best financial governance.  As a result the majority of its clubs actually make a profit.  Since they’ve got costs under control and haven’t had the crutch of ever-increasing TV revenues to lean upon, they’ve learnt to face up to their financial responsibilities and to budget properly, and the Bundesliga has strict financial rules and a grown-up licensing system that is properly enforced – surely the model that debt-ridden English football should be following?

I’ve espoused German financial regulation as a worldwide best-practice many times, so when Hoffenheim – a club I knew virtually nothing about then – purchased Gylfi Sigurdsson from Reading for £6 Million up front, with a reported additional £1.5 Million in future add-ons, I was tempted to find out more about this club.  What I discovered has shaken my faith in the German system of financial governance.

Because Hoffenheim seems to be a pretty artificial construction, a newly-created club in a brand-new stadium without a local supporter-base to sustain it, and what’s more one with a “sugar-daddy” ownership model, with one man pumping large sums on money into the club and calling all the shots.  In 2000 they were an amateur side languishing in the fifth tier of German football, but long-time supporter Dietmar Hopp, co-founder of software firm SAP, has pumped a reported 200 million Euros into the club and they currently top the Bundesliga.  But the club is not well-liked among German supporters. many of whom refer to them contemptuously as “Hoppenheim” or “E18.99 Hoffenheim”.

In my naïvety I thought this was impossible under the Bundesliga regulations which I’ve admired so much, because of the “50+1″ ownership rules and the financial licensing system.  This 50+1 ownership model requires that 50% + 1 of every Bundesliga club is owned by its supporters, through membership schemes.  This has been phenomenally successful, and most clubs have vast and successful membership schemes.  The only exceptions are VfL Wolfsburg and Bayer Leverkusen, both of whom were subsidiaries of large companies before the 50 + 1 ownership regulations came about.  The licensing system means that clubs cannot over-spend and go into debt, as their business plans for the season are submitted to the Bundesliga every year who subject them to detailed scrutiny.  Only certain types of income are allowed to be considered as such, and above all debt is outlawed, and only if a club’s finances are sustainable and everything else is in order are they issued a licence to compete.

So what’s going on at Hoffenheim?

Firstly, they seem to have found an ingenious way around the ownership rules.  Although more than 50% of the club is owned by its members, as the rules dictate, it seems that these same rules don’t define anything to do with voting rights.  So whilst the membership of Hoffenheim is around 3,300 – a figure itself pitifully small by Bundesliga standards – a set of onerous conditions restricts the number of members who get to vote.  I understand that among these conditions is the rule that to qualify to vote a member of the club must also have been employed by the club for a minimum of 5 years – which restricts the electorate to no more than double-figures, all of them on the club’s payroll.  You really do have to congratulate Hoffenheim on the ingenuity of this loophole, which while legal is clearly quite contrary to the spirit of the 50+1 rule.

As to the financial regulations, here the situation is a lot simpler.  Debt is outlawed, so any money coming into the club from a benefactor has to be given as a donation, and so cannot appear on the balance sheet as debt or as any kind of financial liability.  So the 200 Million Euros which Dietmar Hopp has put into the club has been as gifts – not lent to them or exchanged for equity.  It is genuine, non-refunable donations.

That is, of course, far better than the English model, where much of the vast sums of money being put into football clubs by benefactors is not being donated, but instead sits on clubs’ balance sheets as debt of one kind or another, storing up problems for the future.  And the immediate response is to say “well done” to Hoffenheim – after all, they’ve been lucky enough to find someone to give them free money with no strings attached – the dream of every football supporter, surely?

Well, yes, but it’s not quite as simple as that.  When I was looking at this, lots of English clubs sprang to mind as parallels.  Chelsea and Manchester City were obvious ones because of the large sums of external money that have come into those clubs, and MK Dons sprang to mind as a club “created” where there was no traditional supporter base.  But the club that most closely parallels Hoffenheim isn’t an English club after all.  It’s Gretna, who were forced to dissolve in 2008 after a rapid rise up to the Scottish Premier League and the Scottish Cup Final.

Gretna were founded in 1946, just a year after Hoffenheim, and until the last decade both teams were local teams, rattling around the lower, semi-professional, leagues.  With very similar sized populations (Gretna 2,705 in 2001 and Hoffenheim 3,272 in 2010) both teams clearly could not sustain top tier football clubs without outside investment, and when they found it both teams rockets up their respective leagues.  But whilst Hoffenhiem still have Dietmar Hopp, Gretna lost their wealthy benefactor 3 years ago. Brooks Mileson died in 2008, and even before his death severe health problems meant no funding from him for Gretna, and from that point Gretna’s fall was a dramatic as their rise had been.

No-one doubts that Dietmar Hopp, like Brooks Mileson, is a genuine fan who legitimately wants to see the best for the club they love.  But you have to wonder what the future holds for a club so obviously dependant upon one source of gift-funding, especially when that funding means they have far outgrown their roots and their ability to support themselves from their local supporter-base.  It may all end well for Hoffenhiem, but I really wonder how sustainable it all is without Hopp’s millions, and just what might happen should Dietmar Hopp become ill or fall under the proverbial Bus Nummer Neun.

But above all, this has shaken my faith in the Bundesliga regulations, which I previously thought were the perfect model that English football should follow.  Although they are much better than anything we have here, they’re not as perfect and waterproof as they seemed at first, and it seems that no matter how tight the rules are, some-one will be devious enough to find a way to evade what the regulations were written to enforce.